What Are MEV Bots and How Do They Work?

What Is an MEV Bot?

An MEV bot is automated software that looks for opportunities to extract value from the way blockchain transactions are processed.

MEV stands for maximal extractable value. MEV can happen because it makes a financial difference which transactions end up in a block and in what order they are executed.

The person or organization behind an MEV bot is usually called a searcher. A searcher comes up with a strategy and uses software to carry it out automatically. For example, the bot can compare prices on different DEXs, track lending positions, or analyze transactions that have not been processed yet.

An MEV bot does not decide for itself which transactions ultimately end up in a block. The bot tries to find an opportunity and then sends one or more transactions to the network or to specialized infrastructure involved in building blocks.

Key Takeaways

• An MEV bot is software that lets searchers automatically look for MEV opportunities.
• Bots analyze things like prices, blockchain data, and sometimes transactions that are still waiting to be processed.
• They calculate whether a strategy can still be profitable after fees.
• A bot does not decide the final order of transactions in a block.
• Arbitrage, sandwich, frontrunning, and liquidation bots are well-known examples.

How Do MEV Bots Work?

MEV bots constantly monitor data from blockchains and crypto markets. The information a bot uses depends on the strategy.

For example, an arbitrage bot can compare prices of the same token on different DEXs. A liquidation bot, on the other hand, tracks loans within DeFi protocols and checks when a position becomes eligible for liquidation under the protocol’s rules.

Bots can also look at the public mempool. On blockchains that use a public mempool like this, it acts as a kind of waiting area for transactions that have already been sent but have not yet been included in a block. That means a bot can sometimes see which transactions are coming before they are actually executed.

When a bot finds a possible opportunity, it calculates whether it is profitable enough. In doing so, the software looks not only at the possible price difference, but also at things like:

• transaction fees;
• available liquidity;
• price impact;
• competition from other bots;
• the chance that the transaction will actually be executed.

With some strategies, such as arbitrage, multiple actions can be carried out atomically. Atomic means that all steps succeed together or the entire transaction is rolled back. That way, a bot can avoid buying a token but then failing to carry out the planned sale afterward.

Next, the bot sends its transaction. Depending on the network, searchers may use the public mempool or private infrastructure.

On Ethereum, for example, searchers can offer transactions or bundles to specialized builders. A bundle is a package of transactions that the searcher wants executed in a specific order. A builder can then include those transactions when putting together a candidate block.

MEV bots often compete with each other. If multiple bots discover the same opportunity, they all try to get their transaction executed in time. Because of that, speed, technical infrastructure, and costs are important parts of professional MEV strategies.

What Types of MEV Bots Are There?

MEV bots can carry out different strategies. The categories below are not an official or complete classification. One searcher can also run multiple types of strategies using the same infrastructure.

Arbitrage Bots

Arbitrage bots look for price differences for the same token on different DEXs or in different liquidity pools.

If a bot sees that a token can be bought cheaper somewhere than it can be sold elsewhere, it calculates whether the price difference is large enough to leave a profit after transaction fees. If it is, the bot can try to carry out both transactions automatically.

Arbitrage bots can help reduce price differences between different trading platforms.

Sandwich Bots

Sandwich bots try to profit from the price impact of another user’s swap.

To do this, the bot tries to get one of its own transactions executed before the target’s swap and a second transaction after it. The original swap is then, in a way, sandwiched between the bot’s two transactions.

For the affected user, this can lead to extra slippage and a worse execution price.

Frontrunning Bots

Frontrunning bots try to spot a relevant transaction and then get their own transaction executed first.

For example, a bot can recognize a strategy in a transaction visible in a public mempool. The bot can then create a similar transaction itself and try to get it executed earlier.

That does not happen automatically. Which transaction gets priority in the end depends, among other things, on the network, the transaction route used, and the way the block is built.

You can read more about this strategy in our article on frontrunning.

Liquidation Bots

Liquidation bots monitor lending positions within DeFi protocols.

With DeFi loans, crypto is usually locked up as collateral. If the value of that collateral drops too far, a position can become eligible for liquidation under the protocol’s rules.

A liquidation bot tries to recognize that situation as quickly as possible and submit a valid liquidation transaction. In many protocols, the liquidator receives a fee or bonus for this.

So liquidation bots do not cause the bad position themselves. They carry out a function built into the protocol and can help prevent undercollateralized loans from sticking around.

On Which Blockchains Are MEV Bots Used?

MEV bots are mainly found on blockchains with smart contracts, DeFi protocols, and active on-chain trading.

Ethereum is the best-known example. There, bots look for arbitrage opportunities, liquidations, and transactions where other MEV strategies can be applied.

MEV strategies are also used on BNB Smart Chain. Searchers there can use infrastructure where transactions and bundles are offered to builders.

On Solana, specialized MEV infrastructure also exists. Searchers can, for example, offer bundles there that then compete for execution.

The exact setup differs by blockchain. Not every network uses a public mempool, the same transaction fees, or the same division of roles between searchers, validators, and the parties that build blocks. An MEV bot built for Ethereum therefore does not automatically work the same way on Solana or another blockchain.

What Is the Difference Between an MEV Bot and a Searcher?

An MEV bot and a searcher are not the same thing.

• MEV bot: the software that analyzes data and can automatically send transactions.
• Searcher: the person, organization, or market participant looking for MEV opportunities and who may use one or more bots for that.

Other parties can also be involved in processing those transactions.

A builder collects transactions and can use them to assemble a candidate block. A validator helps secure a Proof-of-Stake blockchain and, when selected to do so, can propose a new block.

So a bot can discover a profitable opportunity and send a transaction, but that does not mean the bot itself decides where that transaction ultimately ends up in the block.

Are MEV Bots Good or Bad?

MEV bots are not automatically good or bad. It mostly depends on the strategy they are used for.

Arbitrage bots, for example, can reduce price differences between DEXs. That helps prices across different markets line up more quickly.

Liquidation bots also serve a function within DeFi. They help lending protocols handle positions whose collateral is no longer sufficient.

Other strategies can be harmful to individual users. A sandwich bot, for example, can profit from another trader’s swap, which gives that trader a worse execution price.

Competition between MEV bots can also be intense. Professional searchers therefore invest in fast infrastructure and specialized software to spot and execute opportunities before competitors do.

So the effect of an MEV bot is best judged by what the bot actually does, rather than treating all MEV bots as one kind of activity.

Conclusion

MEV bots are automated programs that searchers use to find and carry out opportunities around blockchain transactions.

They can, for example, compare prices, track lending positions, or analyze transactions that still need to be processed. Once a bot sees an opportunity, it calculates whether it can be profitable after fees and tries to carry out the needed transactions.

Not every MEV bot has the same effect. Arbitrage and liquidation bots can serve useful functions within DeFi, while strategies like sandwiching can hurt individual users.

In the end, an MEV bot is just the technical tool. The strategy of the searcher behind the bot determines how that software is used and what impact it has on other users of the network.